Rent vs Fees

Given the outsized dominance of a handful of tech giants and the crypto movement, I repeatedly find people conflating fees and rents. The narrative goes “these corporations are such rent-seekers. All they care about is making money!”

Unsurprisingly, I hear this not from regular people. It is always from folks trying to “decentralize” everything and those who have an anti big tech bias.

I was reminded of this by a hit piece on Stripe in the light of its new funding round.

Here are few very passionate paragraphs :

E-commerce and digital payments will grow massively in coming decades, and Stripe wants to capture a big slice of that. As we’ve already seen with Paypal and Visa, that sort of control also entails broad, unilateral power to cut off services to inconvenient customers. Stripe, despite paying occasional lip-service to the wonders of decentralization, will prove no better. For-profit processors also impose strangling fees for moving your money: Stripe’s is 2.9% of most transactions, which amounts to half of the average profit margin in some industries.

It’s easy to get distracted by headlines about price bubbles and investor squabbles, but this is why cryptocurrency is vitally important. The fact that a company like Stripe is poised to take over the world is a bad thing, and decentralized systems like bitcoin have the potential to provide an alternative that’s more democratic and more just.

Now, I have nothing against Bitcoin. In fact, I would love for it to realize its full potential in next few decades. But, that is independent of the broader point I intend to make here.

Sar Haribhakti@sarthakgh

It is very very difficult to look at a funding headline and go "well that still seems undervalued and that's not a lot of money"

That is true for Stripe.

"About 84 percent of American adults shopping online bought something via Stripe in the last year."https://t.co/LPACiLSHYQ

September 26, 2018
The author goes on to say :

Stripe (ranked #9 on the list) and Ant Financial (#1, and valued at $150 billion) are centralized payments services that make money largely from transmission fees. Ant is likely an even bigger threat to humanity than Stripe; the company has been repeatedly linked to China’s Orwellian “social credit” scheme, which limits access to basic services if you’ve been a naughty little apparatchik (though the company has denied working with the country’s authoritarian government).

Until we can all flee to Mars, though, take Stripe’s milestone towards global domination as your regular reminder that cryptocurrency and blockchain aren’t just about chasing 100x gains on some random ICO ponzi. They’re about hacking away the tentacles of a swarm of vampire squid before they can be plunged into your carotid artery, again and again, forever.

Now, this line of thinking is very representative of the argument that goes “Centralized players are bad. They rent seek. Therefore, any supposedly decentralized service is great!”. These companies have gotten to this stage by offering a service for which they charge fees. We can debate all day about whether those fees could be a bit lower. "Rent-seeking" is thrown around to sound cool, egalitarian or anti-establishment these days. A fee charged by someone or some entity for a service is not inherently rent seeking even if the fees are higher than you would like.

I have seen countless pitches that basically claim that anything thats centralized is inherently bad. The funniest irony is the same teams are going out to raise venture rounds and are basically companies trying to do something that can be done with traditional tech stack 10x cheaper, better and faster. Not everything has to be decentralized. And not everything needs to be centralized either

We need to be honest about why these companies charge fees and why consumers pay those fees. Rent seeking is extracting value without providing corresponding value. Fees is essentially value provided plus a premium.

Gone are the days of distribution or supply centric zero sum monopolistic empires in most verticals. Our entire worldview of how tech and markets evolve should not be based on how social networks evolve and how Facebook is dominating today.